Good MornING Asia - 3 May 2021 - ING Think
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Economic and Financial Analysis
3 May 2021
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Good MornING Asia - 3 May 2021
Equity markets ended April on a down note, so the next few days will
be instructive as to whether the old "Sell in May and go away, and
come back on St Ledgers Day..." adage will hold this year. For the
record, this year, St Ledgers Day, 11 September will fall on a Saturday
3 May 2021
Opinion
“Sell in May and go away…”
Equity markets ended April on a down note, so the next few days will be
instructive as to whether the old "Sell in May and go away, and come back on
St Ledgers Day..." adage will hold this year. For the record, this year, St
Ledgers Day, 11 September will fall on a Saturday.
April ended weak for stocks
Last Friday marked another soft day for equities, though I concede that just because stocks
only rose on 1 day out of five last week, isn't exactly newsworthy this close to all-time highs,
especially when the declines are pretty marginal.
Still, we are always looking for tentative signals, and there is little sense in pointing them out
after they have already done their work. The market was broadly risk-off on Friday, with 10Y US
Treasury benchmark yields also down, though only slightly, and falling less than 1bp remain at
1.63%, with higher yields looking more likely than lower to us at this point.
The EURUSD also baulked at further EUR gains. there is a slew of stories this morning of analysts
pointing to a much stronger EUR later this year, but the market action suggests that investors
are having trouble swallowing this story on Europe's accelerating vaccinations and fiscal
spending, when the Fed's "patience" story is already being dismissed by many and undermined
by comments from some of its own, including Robert Kaplan. Kaplan again suggested that
owing to "excesses and imbalances in financial markets" the time had come to start talking
about adjusting the Fed's asset purchases. Much of the market has been talking about this for
weeks so for weeks. Our own James Knightley in NY reckons that a taper could start in 4Q21.
Asia FX was split on Friday, with SE Asia mainly in the lead, except for the SGD, which joined the
KRW, and JPY in softening.
Data today
The G-7 highlight today is the Manufacturing ISM survey, which is a useful reminder that it is US
non-farm payrolls week this week, so we will have a bunch of labour market data to look atbetween now and Friday ahead of the actual labour market release.
In addition to a ton of Asian manufacturing PMI data today, which could be quite mixed as
semiconductor shortages weigh on production, we also have Hong Kong GDP for 1Q21, and
Indonesian CPI.
Nicky Mapa has this to say on the Indonesian data: "April inflation will be released today with
the market consensus expecting annual inflation for April of 1.5%YoY (was 1.4% in March). With
the economy likely still registering negative year-on-year GDP in 1Q21, demand pressures have
stayed soft with several regions still under partial lockdown restrictions to limit the spread of
Covid-19. March will mark the 10th straight month inflation will be below the 2-4% inflation
target of Bank Indonesia (BI) but the central bank will be constrained from trimming policy rates
in the near term given the pressure on the IDR.
India election upsets for Modi's BJP
Prakash Sakpal writes this on the latest political news from India: "Against the backdrop of a
worsening Covid-19 situation, with "confirmed" daily new infections over the weekend topping
400,000 and confirmed deaths from Covid-19 of about 3,700, results came in from elections in
four states and a union territory held in late March. Prime Minister Modi’s Bhartiya Janata Party
(BJP) lost elections to regional parties in three states (West Bengal, Tamil Nadu, and Kerala),
retained its hold in one (Assam), and made some inroads in the union territory Puducherry.
We expect an insignificant market impact from these election results. The release of Markit
manufacturing PMI for April looks to be rather more meaningful for investors given that this
data provides a glimpse into the economic fallout of the resurgent Covid-19 pandemic over the
last month. We see nothing positive here for the INR. In yet more negative news for this
currency, the preliminary trade figures for April out yesterday showed the monthly trade deficit
widening to $15.2 billion from $13.9 billion in March. This comes off a huge 197% YoY export
and 166% YoY import surges though these are flattered by a low base from the nationwide
lockdowns a year ago. The INR gained some ground last week after a sell-off the previous week
but still ended April as Asia’s worst performer with a 1.3% loss against the USD -- the only Asian
currency to depreciate on a month-end basis. We see no respite from weakness until the Covid-
19 situation gets under control, which could take months".
Robert Carnell
Regional Head of Research, Asia-Pacific
+65 6232 6020
robert.carnell@asia.ing.com
30 April 2021
Article
Asia week ahead: New week, new month – what’s
changing?
Low base effects, which flatter year-on-year activity growth, should continue
to be a key theme as April data sheds light on GDP growth for 2Q21. Regional
central banks will try to make sense of all this, though three policy meetings
next week in Australia, Malaysia and Thailand should pass as non-eventsAsia Economic Calendar
Source: ING, Refinitiv, *GMT
Prakash Sakpal
Senior Economist, Asia
+65 6232 6181
prakash.sakpal@asia.ing.com
30 April 2021
Snap
China: PMI shows recovery at a slower speed
Recovery in both manufacturing and service sectors continued in China in
April. We expect that an export demand recovery will help factory orders and
that the May holiday will help the services sector. Both point to a rosy picture.
But there are still risks from the technology war and too rapid reform
Manufacturing PMI points to slightly slower growth
China's manufacturing PMI was 51.1 in April, down from 51.9 in the prior month, but still
indicates that the sector is growing.
Some production activity will have been affected by chip shortages, e.g. production of home
appliances, automobiles, laptops and smartphones. As the chips shortage is expected to last for
a few more quarters, there could be continuous rises in the price of semiconductors, which
could push up the prices of electronic goods.
New export orders fell to 50.4 in April from 51.2 a month ago, this may reflect a delayed
response to the Covid recovery in the US and in Europe. We should see some improvements in
export orders as Covid continues to subside in these major export markets.
Services PMI still at high level albeit growing slower, and should go up in May
The service-sector PMI slowed to 54.9 due to a slowdown in real estate activity following tighter
controls on home buying in some locations in China. But this could reverse in May as the long
holiday is expected to result in more inbound tourism, and boost catering and retail sales.
On real estate activity, the central government would like to shrink the debt level of real estate
developers. Big developers have consequently divested assets and repaid some debts. This
approach may not apply to smaller developers. The government will allow more homes sales,
but with the objective that this does not fuel home price gains. This will mean that property
developers with weak cash flow will still be able to raise cash from home sales to repay past
debts. So there is a lot of micro-management of housing policies at the city level.
The risk is that if deleveraging is pursued too rapidly, it could trigger a series of defaults. But as I
mentioned, these policies are micromanaged, and they can be loosened if there are growing
signs of default.
Risk and opportunity
Our GDP 2021 forecast is 8.6%, which looks like very strong growth. But don't forget that the
base was low at 2.3% in 2020.
The main risk remains the technology war, which will make it difficult for China to pursue its
ambition to expand the economy with the help of advanced technology. This risk is also anopportunity for China to develop its own technology and rely less on other economies.
Technology investment will boom in China from now on. This will support future manufacturing
and service PMIs.
Iris Pang
Chief Economist, Greater China
+85 22 848 8071
iris.pang@asia.ing.com
30 April 2021
Snap
Taiwan: Super strong GDP growth in 1Q but chip
shortage risk is imminent
GDP in 1Q21 was strong, but that's history. Water shortages have slowed
semiconductor production in Taiwan just as global chip shortages are rising.
Given that this is such a vital industry for Taiwan, we look at what this means
for the economy in the coming quarters
Strong growth in 1Q21 but that's in the past
8.16% year-on-year GDP growth for the first quarter of 2021 is very encouraging.
This was thanks to strong net export growth, which contributed 4.53 percentage points to GDP
growth. Exports alone increased 24.58% YoY, of which electronic parts grew 28.37% YoY.
Consumption only contributed 1.02 percentage points to GDP growth. This shows that
consumption demand was mild, partly because employment in the service sector was still
affected by Covid, which has limited tourism activities in Taiwan.
Capital formation, including both government and private investment, contributed 2.03
percentage points to economic growth, mostly through investment in 5G infrastructure and
equipment.
Overall, the economy still depends very much on exports and mainly on electronic exports. This
poses an imminent risk to the economy.
Significant consequences of Taiwan's water shortage
Taiwan's economic growth depends on exports and exports have mainly come from the
semiconductor sector. We think that Taiwan's strong economic growth may not last. Water
shortages, which are a climate issue that the government can't control, have affected Taiwan's
semiconductor chip production. For now, the temporary solution is to dig underground for
water used in factories, and at the same time limit water usage by households around those
factories.
The possible consequences are:
1. slower production activity growth from the first quarter;
2. slow down in export growth from the first quarter as the output of chips can't increase any
more, the best scenario is that output levels stay the same from the first quarter, which isalso very difficult to achieve;
3. some production could be moved away from Taiwan to factories owned by Taiwanese
companies in the rest of Asia, and Mainland China should benefit from this;
4. without an increase in chip production, global chip shortages will continue, which will push
up chip prices and therefore goods that use a lot of chips, e.g. automobiles,
smartphones, home appliances, and even lighting (LED uses chips as well).
All of these are negative for GDP growth in the coming quarters for Taiwan.
Forecasts
We have revised our Taiwan GDP forecast for 2021 to 4.9% from 4.3% solely due to the
unexpectedly strong growth in the first quarter. We will monitor the chip production
and export problem, and the possibility of a downgrade to our forecast is higher than
the possibility of an upgrade, which is climate dependent.
Iris Pang
Chief Economist, Greater China
+85 22 848 8071
iris.pang@asia.ing.com
30 April 2021
Article
Listen: India’s devastating second wave
India is in the grip of a particularly cruel second wave that is overwhelming
hospitals and testing the endurance of a nation. In this podcast, ING's Prakash
Sakpal looks at the latest developments in the pandemic and whether India's
economy and markets can weather the storm
With more than 350,000 people now testing positive for Covid-19 every day in India, the
country accounts for almost half of all new cases globally. As supplies run out, hospitals have
been struggling to meet demand, forcing the government to call in the armed forces for help,
while the US and UK have been leading a global effort to stem the crisis. In this podcast,
ING's Senior Economist Prakash Sakpal tells Senior Editor Rebecca Byrne why the second wave
has been so much more devastating than the first, and what it means for the economy and
markets.Prakash Sakpal Senior Economist, Asia +65 6232 6181 prakash.sakpal@asia.ing.com Rebecca Byrne Senior Editor 44 (0) 207 767 6771 rebecca.byrne@ing.com
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